STRALEM FUND
PROSPECTUS
April 30, 1999
The Securities and Exchange Commission has not approved or disapproved the
shares of the Fund as an investment. The Securities and Exchange Commission also
has not determined whether this prospectus is accurate or complete. Any person
who tells you that the Securities and Exchange Commission has made such an
approval or determination is committing a crime.
<PAGE>
Table of Contents
Page
----
Risk/Return Summary......................................................1
Investment Objective...................................................1
Principal Investment Strategies........................................1
Principal Risks of Investing...........................................1
Bar Chart and Performance Table........................................1
Fees Table and Expenses of the Fund......................................2
Investment Objectives, Principal Strategies and Related Risks............3
Investment Objective...................................................3
Principal Strategies...................................................3
Risks of Investing.....................................................4
Investment Adviser and Investment Advisory Agreement.....................5
Shareholder Information..................................................5
Investment Minimums....................................................5
Net Asset Value........................................................5
How to Purchase Shares.................................................6
How to Redeem Shares...................................................6
Dividends and Capital Gains Distributions................................6
Tax Issues.............................................................6
Financial Highlights.....................................................7
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<PAGE>
RISK/RETURN SUMMARY
Investment Objective
Stralem Fund (the "Fund") is a no-load mutual fund with the investment objective
of realizing both income and capital appreciation in an attempt to maximize
total return.
Principal Investment Strategies
The Fund seeks to achieve its investment objective by investing in equity
securities listed or traded on major U.S. stock exchanges and in U.S. Treasury
bonds of varying maturities and by modifying the composition of the Fund's
portfolio as economic and market trends change. The Fund's investment strategies
can be identified as "value-driven" and/or "flexible" investing.
Principal Risks of Investing
The Fund is subject to the risks common to all mutual funds that invest in
equity securities and U.S. Treasury bonds. You may lose money by investing in
this Fund if any of these occur:
o the stock markets of the United States go down decreasing the value of
equity securities;
o a stock or stocks in the Fund's portfolio do not perform as well as
expected; or
o a change in interest rates can change the value of a U.S. Treasury bond.
In addition, the Fund is non-diversified which means that the Fund could have a
portfolio with as few as twelve issuers. To the extent that the Fund invests in
a small number of issuers, there may be a greater risk of losing money than in a
diversified investment company.
Bar Chart and Performance Table
The bar chart and table shown below provide an indication of the risks of
investing in the Fund by showing changes in the Fund's performance from year to
year from January 1, 1989 through December 31, 1998. The following table also
shows the Fund's average annual returns for 1, 5 and 10 years compared with
those of Lipper Flexible Portfolio Index Average. Past performance is not an
indication of future performance.
Bar Chart
The Fund's annual total return for 1998 was 24.7%. The Fund's annual total
return for 1997 was 20.6%. The Fund's annual total return for 1996 was 7.2%. The
Fund's annual total return for 1995 was 25.5%. The Fund's annual total return
for 1994 was -5.6%. The Fund's annual total return for 1993 was 11.7%. The
Fund's annual total return for 1992 was 4.7%. The Fund's annual total return for
1991 was 16.4%. The Fund's annual total return for 1990 was 1.8%. The Fund's
annual total return for 1989 was 18.8%.
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<PAGE>
The Fund's highest quarterly return was 11.3% (for the quarter ended 6/30/97).
The lowest quarterly return was -7.6% (for the quarter ended 9/30/90).
Performance Table
================================================================================
Avg. Annual Total Returns One Five Ten
for period Ending 12/31/98 Year Years Years
- --------------------------------------------------------------------------------
Stralem Fund 24.7% 13.8% 12.2%
- --------------------------------------------------------------------------------
S&P 500* 26.7% 23.6% 18.9%
- --------------------------------------------------------------------------------
Lipper Flexible Portfolio 14.2% 13.5% 12.2%
Index Average**
================================================================================
* The S&P 500 is the Standard & Poor's Composite Index of 500 Stocks, a
widely recognized, unmanaged index of common stock prices.
** The Lipper Flexible Portfolio Index Average is a composite average
of all qualifying funds in the respective investment objective group. In this
case, a flexible fund is one that allocates its investments across a wide range
of asset classes including domestic common stocks, bonds, and money market
instruments with a focus on total return. All Lipper Performance Fund Indexes
are adjusted for capital-gains distributions and income dividends. They are
compiled and distributed by Lipper Analytical Services, Inc.
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
Shareholder Fees (Fees paid directly from your investment)
Maximum Sales Charge (Load) Imposed on Purchases None
Maximum Deferred Sales Charge (Load) None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends None
Redemption Fee None
Exchange Fee None
Annual Fund Operating Expenses (Expenses deducted from Fund assets)
Management Fees* 1.07%
Distribution (12b-1) Fees 0.00%
Other Expenses 0.11%
Total Annual Fund Operating Expenses 1.18%
- -----------------
*Includes administrative fees of 0.07% reimbursed to the Adviser.
EXAMPLE OF EXPENSES
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<PAGE>
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that the investor redeems all of his or her shares at the
end of each period and that your investment has a 5% return each year and that
the Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your cost would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
$120 $375 $649 $1,432
The purpose of the above table is to assist you in understanding the various
costs and expenses that an investor in the Fund would bear directly or
indirectly.
INVESTMENT OBJECTIVE, PRINCIPAL STRATEGIES AND RELATED RISKS
Investment Objective
The Fund's investment objective is realizing both income and capital
appreciation in an attempt to maximize total return.
Principal Strategies
The Fund's investment strategies can be identified as "value-driven" and/or
"flexible" investing. This means that when the Fund anticipates a generally
rising stock market, the Fund invests in equity securities of companies that:
o are listed or traded on major U.S. stock exchanges;
o are a primary factor in their industry;
o have an equity capitalization (at market) of at least $4 billion;
o have a consistently strong and conservative balance sheet;
o have demonstrated a long-term potential for growth superior to the
long-term inflation rate; and
o can be purchased at a price which is in line with current earnings.
When the Fund anticipates a decline in the stock market, the Fund may shift its
emphasis from equity securities to U.S. Treasury bonds if it believes that the
total return from U.S. Treasury bonds will exceed returns from equity
investments.
The Fund invests in U.S. Treasury bonds with longer maturities during periods
when it anticipates lower interest rates and shorter-term U.S. Treasury bonds
when it expects interests rates to rise. The Fund may also invest in money
market instruments from banks insured by the Federal Deposit Insurance
Corporation.
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<PAGE>
Risks of Investing
As with all mutual funds, investing in the Fund involves certain risks. We
cannot guarantee that the Fund will meet its investment objective or that the
Fund will perform as it has in the past. You may lose money if you invest in the
Fund.
The Fund may use various investment techniques, some of which involve greater
amounts of risk. These investment techniques are discussed in detail in the
Statement of Additional Information. To reduce risk, the Fund is subject to
certain limitations and restrictions. The Fund, however, intends to comply with
the diversification requirements of federal tax law as necessary to qualify as a
regulated investment company.
Risks of Investing in Mutual Funds
The following risks are common to all mutual funds and therefore apply to the
Fund:
o Market Risk. The market value of a security may go up or down,
sometimes rapidly and unpredictably. These fluctuations may cause a
security to be worth less than it was at the time of purchase. Market
risk applies to individual securities, a particular sector or the
entire economy.
o Manager Risk. Fund management affects Fund performance. A Fund may
lose money if the Fund manager's investment strategy does not achieve
the Fund's objective or the manager does not implement the strategy
properly.
o Year 2000 Risk. The Fund, its service providers or the companies in
which the Fund invests could be disrupted by problems in their
computer systems related to the Year 2000. The Adviser has taken steps
that it reasonably believes are designed to adequately address the
Year 2000 issue as it relates to the operation of the Fund. In
addition, the Fund's major service providers have assured the Adviser
that they have taken comparable steps. Neither the Fund nor its major
service providers can assure that these steps will be sufficient to
avoid any adverse affects from the Year 2000 issue.
Risk of Investing in Equity Securities
The following risk is common to all mutual funds that invest in equity
securities and therefore applies to the Fund:
o Equity Risk. The value of the stock will fluctuate with events
affecting the company's profitability or volatility. Unlike debt
securities, which have a preference to a company's earnings and cash
flow, equity securities receive value only after the company meets its
other obligations.
- 4 -
<PAGE>
Risks of Investing in U.S. Treasury Bonds
The following risk is common to all mutual funds that invest in U.S. Treasury
bonds and therefore applies to the portion of the Fund that is invested in U.S.
Treasury bonds:
o Interest Rate Risk. The value of a U.S. Treasury bond may decline if
interest rates change. The value of a such a security changes in the
opposite direction from a change in interest rates. For example, the
value of the security typically decreases when interest rates rise. In
general, U.S. Treasury bonds with longer maturities are more sensitive
to changes in interest rates than those with shorter maturities.
INVESTMENT ADVISER AND INVESTMENT ADVISORY AGREEMENT
Stralem & Company Incorporated (the "Adviser"), 405 Park Avenue, New York, NY
10022 is the investment adviser of the Fund. The Adviser, an investment adviser
registered with the SEC, was founded in November 22, 1966. The Adviser manages
funds for individuals, trusts, pension plans and other institutional investors.
The Adviser also performs some brokerage functions for its clients.
Advisory Services. Under the investment advisory agreement (the "Contract"), the
Adviser screens and analyzes potential investments for the Fund and, subject to
the investment restrictions and policies of the Fund, determines the amount of
each investment that should be made and the form of such investment. The Adviser
also reviews and re-evaluates the Fund's portfolio, periodically, to determine
at what point investments have met the Fund's investment objective or are
unlikely to meet such objective. The Adviser then purchases or sells the Fund's
investments as it deems appropriate and consistent with the Fund's investment
objective. The Adviser also provides certain clerical, statistical and other
administrative services for the Fund.
For the year ending December 31, 1998, the Fund paid a quarterly management fee
calculated at an annual rate of 1.07% of the Fund's average weekly net assets.
Of this fee, 1.00% was paid for advisory services and 0.07% was reimbursed to
the Adviser for administrative services.
Portfolio Manager. Philippe E. Baumann is primarily responsible for the
day-to-day management of the Fund's portfolio. Mr. Baumann has been executive
vice president of the Adviser since 1973.
SHAREHOLDER INFORMATION
Investment Minimums. The minimum initial investment in the Fund is $100. There
is no minimum for subsequent investments. We may reduce or waive the minimum
investment requirements in some cases.
Net Asset Value. The net asset value ("NAV") per share of the Fund is determined
as of 4:00 p.m. Eastern Standard Time on each day the New York Stock Exchange,
Inc. (the "Exchange") is open for business. The NAV is calculated by subtracting
the Fund's liabilities from its assets and then dividing that number by the
total number of outstanding shares. Securities without a readily available price
quotation may be priced at fair value. Fair value is determined in good faith by
the management of the Fund.
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<PAGE>
How to Purchase Shares. You must be a client of the Adviser to purchase shares
of the Fund. Clients may purchased shares from the Adviser at 405 Park Avenue,
New York, New York 10022. When you purchases shares of the Fund, you will pay no
sales charges, underwriting discounts or commissions. The Fund's shares are
continuously offered for sale at NAV. The Fund must receive your purchase
request by the close of the Exchange to receive the NAV of that day. If your
request is received after the close of trading on the Exchange, it will be
processed the next business day.
How to Redeem Shares. You may redeem shares without charge at any time. The Fund
must receive your request in writing and if you were issued certificates, your
properly endorsed certificates with your signature guaranteed. Your shares will
be valued at the next-determined NAV of such shares. The Fund must receive your
purchase request by the close of the Exchange to receive the NAV of that day.
The Fund will pay you as soon as reasonably practicable after receipt of the
redemption request and certificates. In any event, the Fund will pay you within
three business days. Because the NAV fluctuates with the change in market value
of the securities owned, the amount you receive upon redemption may be more or
less than the amount you paid for the shares.
Suspension of Redemptions. The Fund may suspend at any time redemption of shares
or payment when:
o the Exchange is closed;
o trading on the Exchange is restricted; or
o certain emergency circumstances exists.
Dividends and Capital Gains Distributions. The Fund intends to distribute all or
most of its net investment income and net capital gains to shareholders
annually. You should indicate on your purchase application whether you want your
dividends and distributions in cash. Otherwise, your dividends and/or capital
gains distributions will be automatically reinvested in the Fund at NAV.
Tax Issues. The Fund intends to continue to qualify as a regulated investment
company, which means that it pays no federal income tax on the earnings or
capital gains it distributes to its shareholders. We provide this tax
information for your general information. You should consult your own tax
adviser about the tax consequences of investing in a Fund.
o Ordinary dividends from the Fund are taxable as ordinary income and
dividends from the Fund's long-term capital gains are taxable as
capital gain.
o Dividends are treated in the same manner for federal income tax
purposes whether you receive them in the form of cash or additional
shares. They may also be subject to state and local taxes.
o Certain dividends paid to you in January will be taxable as if they
had been paid the previous December.
o We will mail you tax statements every January showing the amounts and
tax status of the distributions you received.
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<PAGE>
o When you sell (redeem) or exchange shares of a Fund, you must
recognize any gain or loss.
o Because your tax treatment depends on your purchase price and tax
position, you should keep your regular account statements for use in
determining your tax.
o You should review the more detailed discussion of federal income tax
considerations in the Statement of Additional Information.
FINANCIAL HIGHLIGHTS
This financial highlights table is intended to help you understand the Fund's
financial performance for the past 5 years. Certain information reflects
financial results for a single share of the Fund. The total returns in the table
represent the rate that an investor would have earned (or lost) on an investment
in the Fund assuming reinvestment of all dividends and distributions. Richard A.
Eisner & Company, LLP has audited this information. Richard A. Eisner & Company
LLP's report along with further detail on the Fund's financial statements are
included in the annual report which is available upon request.
For a capital share outstanding throughout the period
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 13.15 $ 11.66 $ 11.55 $ 9.77 $ 10.90
--------- --------- --------- --------- ---------
Income (loss) from investment operations:
Net investment income .35 .41 .47 .49 .50
Net gains or losses on securities 2.90 2.00 .36 2.00 (1.11)
--------- --------- --------- --------- -------
Total from investment income (loss) 3.25 2.41 .83 2.49 (.61)
--------- --------- --------- --------- -------
Less distributions:
Dividends from net investment income (.34) (.40) (.47) (.49) (.49)
Distributions from capital gains (.92) (.52) (.25) (.22) (.03)
--------- --------- --------- --------- -------
Total distributions (1.26) (.92) (.72) (.71) (.52)
--------- --------- --------- --------- -------
Net asset value, end of period $ 15.14 $ 13.15 $ 11.66 $ 11.55 $ 9.77
========= ========= ========= ========= =========
Total Return 24.70% 20.62% 7.22% 25.45% (5.58)%
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<PAGE>
Ratio/supplemental data:
Net assets, end of period (in thousands) $48,662 $35,586 $30,849 $29,483 $25,597
Ratio of expenses to average net assets 1.18% 1.19% 1.21% 1.23% 1.25%
Ratio of net investment income to average
net assets 2.30% 2.87% 3.72% 4.12% 4.52%
Portfolio turnover rate 18.00% 52.00% 17.00% 35.00% 42.00%
</TABLE>
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<PAGE>
[back cover]
Statement of Additional Information. The Statement of Additional Information
provides a more complete discussion about the Fund and is incorporated by
reference into this prospectus, which means that it is considered a part of this
prospectus.
Annual and Semi-Annual Reports. The annual and semi-annual reports to
shareholders contain additional information about the Fund's investments,
including a discussion of the market conditions and investment strategies that
significantly affected the Fund's performance during its last fiscal year.
To Review or Obtain this Information. To obtain a free copy of the Statement of
Additional Information and annual and semi-annual reports or to make any other
inquiries about the Fund, you may call (212) 888-8123. This information may be
reviewed and copied at the Public Reference Room of the Securities and Exchange
Commission in Washington, D.C. Information on the operation of the Public
Reference Room may be obtained by calling (800) SEC-0330. Copies of this
information may also be obtained for a fee by writing the Public Reference Room
of the Securities and Exchange Commission, Washington, D.C. 20549-6009.
Information about the Fund is also available on SEC's World Wide Web site at
http://www.sec.gov.
Investment Company Act File No. 811-1920.
- 9 -
<PAGE>
STRALEM FUND
STATEMENT OF ADDITIONAL INFORMATION
April 30, 1999
This Statement of Additional Information ("SAI") is not a Prospectus. This SAI
should be read in conjunction with the Prospectus of Stralem Fund (the "Fund"),
dated April 30, 1999 and the Fund's Annual Report dated December 31, 1998. This
SAI is incorporated by reference in its entirety into the Prospectus. To obtain
a copy of the Fund's Prospectus, please write to the Fund at 405 Park Avenue,
New York, New York 10022 or call (212) 888-8123.
Stralem & Company Incorporated serves as the Fund's investment adviser (the
"Investment Adviser").
TABLE OF CONTENTS
Page
Fund Organization and History............................................. B-2
Investment Objective, Policies and Techniques............................. B-2
Management of the Fund.................................................... B-3
Control Persons and Principal Holders of Securities....................... B-5
Investment Adviser........................................................ B-6
Brokerage Allocation...................................................... B-8
Additional Information on Purchase, Redemption and Pricing of Shares...... B-8
Performance of the Fund................................................... B-9
Taxes..................................................................... B-9
Additional Information About the Fund.....................................B-14
Financial Statements......................................................B-15
B-1
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
The SAI provides a further discussion of certain matters described in the
Prospectus and other matters which may be of interest to investors. No
investment in shares of the Fund should be made without first reading the
Prospectus.
FUND ORGANIZATION AND HISTORY
Stralem Fund (the "Fund") is an open-end management investment company. The Fund
was incorporated on July 9, 1969 under the laws of the State of Delaware, and on
April 30, 1999, the Fund was reorganized into a Delaware business trust.
INVESTMENT OBJECTIVE, POLICIES AND TECHNIQUES
Objective of the Fund
The investment objective of the Fund is to seek the
realization of a combination of income and capital appreciation in an attempt to
maximize total return.
Investment Policies
Since 1974, the Fund's investment policy has been to achieve
its investment objective through a portfolio of securities which is not confined
to any particular area. The Fund is non-diversified and may, therefore, invest a
greater percentage of its assets in the securities of fewer issuers than many
diversified investment companies. To the extent that a greater portion of its
assets is invested in a smaller number of issuers, an investment in the Fund may
be considered more speculative than an investment in a diversified fund.
Other Investment Techniques
The Fund may purchase and sell covered options on stocks and
stock price index listed on major exchanges (i.e., not including securities
traded over-the-counter) where the total cost of such options does not exceed
10% of the net asset value of the Fund at the time of purchase. A covered option
is one where the Fund owns the underlying securities.
Turnover Rate
During 1998 and 1997 the turnover rate of the Fund's
portfolio, calculated by dividing the lesser of purchases or sales of portfolio
securities for the period by the monthly average of the value of the portfolio
securities owned by the Fund during the period, was approximately 18% and 52%,
respectively. The Fund cannot predict what its turnover rate will be in 1999. A
high rate of turnover may result in increased income and gain which would have
to be distributed to the Fund's stockholders in order for the Fund to continue
to qualify as a regulated investment company under Subchapter M of the Internal
Revenue Code.
Fundamental Investment Restrictions
The Fund has adopted the following investment restrictions
which cannot be changed without approval of the holders of a majority of its
outstanding shares. A majority vote means the lesser of (i) 67% or more of the
shares present (in person or by proxy) at a meeting of shareholders at which
more than one-half of the outstanding shares of the Fund are present (in person
or by proxy) or (ii) more than one-half of the outstanding shares of the Fund.
1. The Fund may not issue any senior security (as defined by
the 1940 Act), except that (a) the Fund may engage in transactions that
may result in the issuance of senior securities to the extent
B-2
<PAGE>
permitted under applicable regulations and interpretations of the 1940
Act or an exemptive order; (b) the Fund may acquire other securities,
the acquisition of which may result in the issuance of a senior
security, to the extent permitted under applicable regulations or
interpretations of the 1940 Act; and (c) subject to the restrictions
set forth below, the fund may borrow as authorized by the 1940 Act.
2. The Fund may not borrow money, except that the Fund may (a)
enter into commitments to purchase securities and instruments in
accordance with its investment program, provided that the total amount
of any borrowing does not exceed 33 1/3% of the Fund's total assets at
the time of the transaction; and (b) borrow money in an amount not
exceeding 33 1/3% of the value of its total assets at the time when the
loan is made. Any borrowings representing more than 33 1/3% of the
Fund's total assets must be repaid before the Fund may make additional
investments.
3. The Fund may underwrite securities of other issuers, except
to extent that the Fund may be considered an underwriter within the
meaning of the Securities Act when reselling securities held in its own
portfolio.
4. The Fund may not concentrate its investments in a
particular industry (other than securities issued or guaranteed by the
government or any of its agencies or instrumentalities). No more than
25% of the value of the Fund's total assets, based upon the current
market value at the time of purchase of securities in a particular
industry, may be invested in such industry. This restriction shall not
prevent the Fund from investing all of its assets in a "master" fund
that has adopted a similar restriction.
5. The Fund may not engage in the purchase or sale of direct
interests in real estate or invest in indirect interests in real
estate, except for the purpose of providing office space for the
transaction of its business. The Fund may, however, invest in
securities of real estate investment trusts when such securities are
readily marketable, but has no current intention of so doing.
6. The Fund may not purchase or sell physical commodities
unless acquired as a result of ownership of securities or other
instruments (but this shall not prevent the Fund from purchasing or
selling options and futures contracts or from investing in securities
or other instruments backed by physical commodities).
7. The Fund may not lend any security or make any other loan
if, as a result, more than 33 1/3% of its total assets would be lent to
other parties, but this limitation does not apply to purchases of
publicly issued debt securities or to repurchase agreements.
8. As to 50% of the value of its total assets, the Fund may
not invest more than 5% of its assets, taken at market value, in the
securities of any one issuer (except United States Government
securities) and may not purchase more than 10% of the outstanding
voting securities of any such issuer.
9. The Fund may not invest more than 25% of the value of its
total assets, taken at market value, in the securities of a single
issuer.
MANAGEMENT OF THE FUND
Trustees and Officers
The Board of Trustees of the Fund is responsible for the
over-all operations of the Fund. The officers of the Fund, under the direction
of the Board of Trustees of the Fund, are responsible for the day-to-day
operations of the Fund. The Trustees and Officers of the Fund are as follows:
B-3
<PAGE>
<TABLE>
<CAPTION>
Shares of Fund Beneficially Current Principal Occupation
Name, Office, Address and Owned Directly or Indirectly and Principal Occupation
Age at March 5, 1999 During Past Five Years
--- ------------------ -----------------------
<S> <C> <C>
Philippe E. Baumann (68)* 182,516 /1/ Mr. Baumann has been a Director and
Trustee and President Vice-President of Stralem & Company
880 Fifth Avenue Incorporated from 1970 to May 31, 1973.
New York, NY 10021 Since June 1, 1973, he has been its
Executive Vice President.
Hirschel B. Abelson (65)* 218,621 /2/ Mr. Abelson has been President of
Secretary and Treasurer Stralem & Company Incorporated for
112 East 74th Street more than five years.
New York, NY 10021
Kenneth D. Pearlman (68) 376 Mr. Pearlman has been the Managing
Trustee Director of The Evans Partnership, an
200 East 64th Street investment partnership, for more than five
New York, NY 10021 years.
Michael T. Rubin (58)* 3,883 /3/ From 1974 through his retirement in June
Trustee 1997, Mr. Rubin served as Vice President
425 Park Avenue South of the Fund and an Assistant Vice
New York, NY 10016 President and an Assistant Secretary of
Stralem & Company Incorporated.
Jean Paul Ruff (64) 1,530 /4/ Mr. Ruff has been President of Hawley
Trustee Fuel Coal, Inc. since 1976 and Chairman
351 E. 84th Street since 1980.
New York, NY 10028
Philippe Labaune (30) 516 Mr. Labaune has been employed by
Vice President Stralem & Company Incorporated since
313 East 95th Street May 1997. He has served as Assistant
#14 Vice President and Assistant Secretary of
New York, NY 10128 Stralem & Company Incorporated and
Vice President of the Fund since October
1997. He was a trader at Societe
Generale Securities Corp. from 1995-1997
and a student at Pace University prior to
1995.
Joann Paccione (42) 0 Ms. Paccione has been Assistant Secretary
Assistant Secretary and and Assistant Treasurer of the Fund since
Assistant Treasurer April 1990. She was employed as an
112 Thomas Avenue accountant by Richard A. Eisner &
Emerson, NJ 07630 Company, LLP from 1981 through
October 1987. Since October 1987, Ms.
Paccione has been engaged in providing
accounting services on an independent
basis.
</TABLE>
- --------------------
B-4
<PAGE>
* Interested person as defined in the Investment Company Act of 1940, as
amended, by reason of relationship as officer or trustee.
1 Does not include 159,291 shares owned in the aggregate by two children of
Mr. Baumann and 13,144 shares owned by his wife, but includes 179,239
shares owned beneficially by Mr. Baumann through his interest in Stralem
Employees Profit Sharing Trust, and 3,277 shares held directly.
2 Does not include 2,681 shares owned in the aggregate by three children of
Mr. Abelson and 376 shares owned by his wife, but includes 218,245 shares
owned beneficially by Mr. Abelson through his interest in Stralem Employees
Profit Sharing Trust and 376 shares held directly.
3 Does not include an aggregate of 3,833 shares owned by Mr. Rubin's
daughter, of which shares he disclaims beneficial ownership.
4 Does not include 30,252 shares owned in the aggregate by two children of
Mr. Ruff and 15,126 shares held by Mr. Ruff's wife in custody for his
daughter, of which shares he disclaims beneficial ownership.
Mr. Baumann has served as a director of the Fund since April
27, 1972. Mr. Pearlman was elected a director for the first time on February 6,
1974. Mr. Ruff was elected a director at the Annual Meeting of Stockholders held
on April 23, 1980. Mr. Rubin was elected a director on October 8, 1997 to fill
the seat left vacant upon the death of William Hertan in December 1996. At a
meeting of shareholders on April 7, 1999, Messrs. Baumann, Pearlman, Ruff and
Rubin were elected to serve as trustees of the Fund.
None of the trustees and officers of the Fund receives any
compensation, other than trustees' fees, from the Fund. The Fund pays each
trustee of the Fund who is not an employee of the Investment Adviser a trustee's
fee of $200 for each meeting attended, but not in excess of $1,200 a year, and
reimburses them for their out-of-pocket expenses incurred on Fund business. No
trustees' out-of-pocket expenses were claimed or reimbursed during 1998. The
table below illustrates the compensation paid to each trustee for the Fund's
most recently completed fiscal year:
<TABLE>
<CAPTION>
Pension or Estimated Total
Aggregate Retirement Benefits Annual Compensation
Compensation Accrued as Part of Benefits Upon from the Fund
Name of Person, Position from the Fund Fund Expenses Retirement Paid to Trustees
------------------------ ------------- ------------- ---------- ----------------
<S> <C> <C> <C> <C>
Jean Paul Ruff, $800 0 0 $800
Trustee
Kenneth D. Pearlman, $1,000 0 0 $1,000
Trustee
Michael T. Rubin, $1,000 0 0 $1,000
Trustee
</TABLE>
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of March 5, 1999, the Fund had authorized capital of
5,000,000 shares of one class of capital stock, par value $1.00. As of March 5,
1999, the Fund had 3,933,007 shares of beneficial interest issued and
outstanding. The following table shows certain information as to the holdings of
shareholders with 5% or more of the Fund's outstanding shares and the trustees
and officers of the Fund as a group as of March 5, 1999:
B-5
<PAGE>
<TABLE>
<CAPTION>
Amount and Nature
Name of of Beneficial Percent
Beneficial Owner Address Ownership /1/ of Class
---------------- ------- ------------- --------
<S> <C> <C> <C>
Stralem Employees' 405 Park Avenue 599,644 shares 15.25%
Profit Sharing Trust New York, NY 10022
Brown Brothers Harriman - 4 World Trade Center 576,911 shares /2/ 14.67%
UBS New York, NY 10005
</TABLE>
- --------------------
1 Unless otherwise indicated, all ownership is record and beneficial.
2 Record only.
INVESTMENT ADVISER
The Investment Adviser, Stralem & Company Incorporated, having
an office at 405 Park Avenue, New York, New York 10022, is the investment
adviser to the Fund under a contract (the "Contract") dated April 30, 1999.
Pursuant to the Contract, the Investment Adviser provides the Fund with, and
pays for, all office space and utilities and all research and investment
services. The Investment Adviser provides the Fund with, and initially pays for
(subject to reimbursement by the Fund, as provided below), all clerical,
statistical and related services (excluding legal, accounting, auditing and
custodial services) reasonably required by the Fund for the conduct of its
business. Legal, accounting, auditing and custodial services are separately
obtained and paid for by the Fund.
The Fund reimburses the Investment Adviser for certain of its
expenses attributable to the administration of the Fund, including a
proportionate part of the compensation of employees of the Investment Adviser
who perform the clerical, statistical and related services for the Fund referred
to above; such reimbursement is limited by the Contract to $25,000 per annum.
Under such provision of the Contract, the Fund reimburses the Investment Adviser
for, among other things, the expenses and compensation of its employees incurred
in preparing reports for the Fund, in performing the Fund's duties as the
transfer agent and registrar of its own shares and as dividend agent and in
performing all of the other administrative functions of the Fund. The Fund pays
all of its other costs and expenses directly. As a consequence of such
reimbursement of the Investment Adviser and such direct payment of other costs,
substantially all of the Fund's expenses, other than those for office space and
facilities, are directly or indirectly paid by the Fund. The Contract is
reviewed annually by the Board of Trustees of the Fund who may in their
discretion approve the continuation of the Contract.
The Contract was approved and adopted by the Fund's
shareholders at an Annual Shareholders' meeting held on April 7, 1999 following
the conversion of the Fund to a Delaware business trust. This Contract replaced
the prior investment management agreement of the Fund dated February 28, 1977.
The Fund pays the Adviser an advisory fee as described in the
Contract. Under the Contract, the Fund pays to the Investment Adviser on a
quarterly basis an amount equal to the aggregate of the following percentages of
the average weekly net asset value of the Fund during the quarterly period then
ended:
1/4 of 1% of the first $50 million of such net asset value (1%
annually),
3/16 of 1% of the next $50 million of such net asset value
(3/4 of 1% annually), and
1/8 of 1% of such net asset value in excess of $100 million
(1/2 of 1% annually).
B-6
<PAGE>
The total payment under the Contract for 1998 was $505,341, of which $24,945 was
a reimbursement of the Investment Adviser's expenses attributable to
administration of the Fund. The total payment under the Contract for 1997 was
$412,175 of which $21,240 was a reimbursement for the Investment Adviser's
expenses attributable to the administration of the Fund. The total payment under
the Contract for 1996 was $365,410 of which $20,600 was a reimbursement of the
Investment Adviser's expenses attributable to administration of the Fund.
The Contract will continue in effect from year to year so long
as its continuance is specifically approved at least annually either (1) by the
Board of Trustees of the Fund or (2) by the vote of a majority of the
outstanding shares of the Fund, provided that in either event the continuance is
also approved by the vote of a majority of the directors of the Fund who are not
parties to the Contract or interested persons of such parties, cast in person at
a meeting called for the purpose of voting on such approval. In addition, the
Contract may be terminated, without the payment of any penalty, at any time by
the Board of Trustees of the Fund, by the Investment Adviser, or by the vote of
a majority of the outstanding shares of the Fund upon not more than 60 days'
written notice, and will be automatically terminated upon any assignment
thereof.
The Investment Adviser is a registered investment adviser
under the Investment Advisers Act of 1940, as amended, and has as clients
private individuals, trusts, pension and profit sharing funds, some of whom,
like the Fund, have capital appreciation as an investment objective. As a
result, investment personnel of the Investment Adviser may at times consider
purchases and sales of the same investment securities for the Fund as well as
for one or more of the other accounts which they manage or advise. In such
cases, it would be the practice of such personnel to allocate the purchases and
sales transactions among the Fund and such other accounts in an equitable manner
with each account paying the average share price for all transactions in a
particular security on a given business day. In making such allocation, the main
factors considered would be the respective investment objectives of the Fund and
the other accounts, the relative size of the portfolio holdings of each of the
same or comparable securities, the current availability of cash for investment
by the Fund and each of the other accounts, the tax status of the Fund and the
other accounts, and the size of investment commitments generally held by the
Fund and the other accounts. All transaction costs relating to these purchases
and sales will be shared pro rata by the Fund and the other accounts based on
each account's participation in a transaction.
Within the limits set forth in Section 17 of the Investment
Company Act of 1940, as amended (the "1940 Act"), the Fund may invest in
securities the issuers of which are clients of the Investment Adviser, but such
investments would only be made in securities which are freely marketable under
the Securities Act of 1933 (the "Securities Act").
The Investment Adviser's other advisory clients pay advisory
fees to the Investment Adviser based upon the amount of the securities and/or
cash of such clients with respect to which the Investment Adviser renders
investment advice. Accordingly, although the Fund pays an investment advisory
fee to the Investment Adviser, investment advisory clients of the Investment
Advisor who own shares of the Fund's stock may also pay an additional advisory
fee to the Investment Adviser (in addition to the fee indirectly paid on their
behalf by the Fund) with respect to the amount invested in the shares of the
Fund. No additional investment advisory fees are charged to clients of the
Investment Adviser which are subject to the Employee Retirement and Income
Security Act on amounts invested by such clients in the Fund.
Mr. Philippe E. Baumann is an officer and trustee of the Fund
and also of the Investment Adviser. Mr. Abelson is an officer of the Fund and is
also an officer of the Investment Adviser. Mr. Labaune is an officer of the Fund
and an officer of the Investment Adviser. The following persons, as of March 5,
1999, beneficially owned 5% or more of the Investment Adviser's outstanding
voting common stock: President of the Investment Adviser, Hirschel B. Abelson
(33.3%); Executive Vice President of the Investment Adviser, Philippe E. Baumann
(33.3%); and Vice President of the Investment Adviser, M. Joel Unger (33.3%).
Messrs. Abelson, Baumann and Unger together control the Investment Adviser.
Messrs. Abelson, Baumann and Unger, together with members of their families,
also own 100% of the outstanding non-voting common stock of the Investment
Adviser.
B-7
<PAGE>
BROKERAGE ALLOCATION
Decisions to buy and sell securities for the Fund and
assignment of its portfolio business and negotiation of its commission rates,
where applicable, are made by the President and the Vice-President of the Fund,
who are also officers of the Investment Adviser. It is the Fund's policy to
obtain the best prices and execution of orders available, and, in doing so, the
Fund will assign portfolio executions and negotiate transactions in accordance
with the reliability and quality of a broker's services (including handling of
execution of orders, research services the nature of which is the receipt of
research reports, and related services) and the value of such services and
expected contribution to the performance of the Fund. Where commissions paid
reflect services furnished to the Fund in addition to execution of orders, the
Fund will stand ready to demonstrate that such services were bona fide and
rendered for the benefit of the Fund. It is possible that certain of such
services may have the effect of reducing the Investment Adviser's expenses.
During 1998, 1997 and 1996, the Fund's brokerage amounted to
$37,935, $57,500 and $33,788, respectively, 100% of which was placed through the
Investment Adviser or affiliated persons of the Fund or the Investment Adviser
or any other brokers an affiliated person of which is an affiliated person of
the Fund or the Investment Adviser. The Contract does not contain any provision
requiring the Fund's brokerage to be transacted through the Investment Adviser.
The Board of Trustees has reviewed and approved the foregoing brokerage
arrangements.
With respect to any transactions to which competitively
determined rates are applicable, the execution will not be placed with the
Investment Adviser at a commission rate less favorable than the Investment
Advisor's contemporaneous charges for its other most favored, but unaffiliated,
customers; and, in addition, a good faith judgment will be made that the
Investment Adviser is qualified to obtain the best price on the particular
transaction and that the commission charged will be reasonable in relation to
the value of the brokerage provided in terms of either the particular
transaction or the Investment Adviser's overall responsibilities to the Fund.
Since the obligation already exists to provide management (which would include
elements of research and related skills), brokerage commissions paid to the
Investment Adviser will not reflect anything other than payment for the
execution services performed on the particular transactions.
When the Fund purchases or sells a security "over-the-counter"
if possible it effects the transaction with a principal market maker, without
the use of a broker, unless in the opinion of the Fund a better execution will
be achieved through the use of a broker.
The Contract does not provide for a reduction of the
investment advisory fee by any portion of the brokerage generated by portfolio
transactions of the Fund which the Investment Adviser may receive.
The Investment Adviser will not participate in commissions
paid by the Fund to other brokers or dealers and will not receive any reciprocal
business, directly or indirectly, as a result of such commissions.
ADDITIONAL INFORMATION ON PURCHASE, REDEMPTION AND PRICING OF SHARES
The Fund pays an investment advisory fee to the Investment
Adviser; accordingly, investment advisory clients of the Investment Adviser who
pay an investment advisory fee based upon the amount of securities or cash with
respect to which the Investment Adviser renders investment advice and who own
shares of the Fund's stock may also effectively pay an additional advisory fee
with respect to these shares.
Shares sold by the Fund may be purchased only from Stralem &
Company Incorporated, 405 Park Avenue, New York, New York 10022, the statutory
underwriter of such shares, which pursuant to a distribution agreement dated as
of April 30, 1999, acts without any compensation as exclusive representative of
the Fund in making such sales. It receives, on behalf of the Fund, subscriptions
for shares and payments therefor. This distribution agreement replaced the prior
distribution agreement dated February 28, 1977.
B-8
<PAGE>
PERFORMANCE OF THE FUND
From time to time, the "average annual total return" and
"total return" of an investment in the Fund's shares may be advertised. An
explanation of how yields and total returns are calculated for each class and
the components of those calculations are set forth below.
Total return information may be useful to investors in
reviewing the Fund's performance. A Fund's advertisement of its performance
must, under applicable SEC rules, include the average annual total returns for
each class of shares of a Fund for the 1, 5, and 10-year period (or the life of
the class, if less) as of the most recently ended calendar quarter. This enables
an investor to compare the Fund's performance to the performance of other funds
for the same periods. However, a number of factors should be considered before
using such information as a basis for comparison with other investments.
Investments in a Fund are not insured; its total return is not guaranteed and
normally will fluctuate on a daily basis. When redeemed, an investor's shares
may be worth more or less than their original cost. Total return for any given
past period are not a prediction or representation by the Fund of future rates
of return on its shares. The total return of the shares of the Fund are affected
by portfolio quality, portfolio maturity, the type of investments the Fund
holds, and operating expenses.
Total Returns
The "average annual total return" of the Fund is an average
annual compounded rate of return for each year in a specified number of years.
It is the rate of return ("T" in the formula below) based on the change in value
of a hypothetical initial investment of $1,000 ("P") held for a number of years
("n") to achieve an Ending Redeemable Value ("ERV"), according to the following
formula:
P(1+T)n = ERV
The cumulative "total return" calculation measures the change in value of a
hypothetical investment of $1,000 over an entire period of years. Its
calculation uses some of the same factors as average annual total return, but it
does not average the rate of return on an annual basis. Cumulative total return
is determined as follows:
ERV - P = Cumulative Total Return
-------
P
In calculating total return for the Fund, the current maximum sales charge (as a
percentage of the offering price) is deducted from the initial investment ("P").
Total returns also assume that all dividends and net capital gains distributions
during the period are reinvested to buy additional shares at net asset value per
share, and that the investment is redeemed at the end of the period.
TAXES
The following is only a summary of certain additional federal
income tax considerations generally affecting the Fund and its shareholders that
are not described in the Prospectus. No attempt is made to present a detailed
explanation of the tax treatment of the Fund or its shareholders, and the
discussions here and in the Prospectus are not intended as substitutes for
careful tax planning.
Qualification as a Regulated Investment Company
The Fund has elected to be taxed as a regulated investment
company under Subchapter M of the Code. As a regulated investment company, the
Fund is not subject to federal income tax on the portion of its net investment
income (i.e., taxable interest, dividends and other taxable ordinary income, net
of expenses) and capital gain net income (i.e., the excess of capital gains over
capital losses) that it distributes to shareholders, provided that it
distributes at least 90% of its investment company taxable income (i.e., net
investment income and the excess of
B-9
<PAGE>
net short-term capital gain over net long-term capital loss) for the taxable
year (the "Distribution Requirement"), and satisfies certain other requirements
of the Code that are described below. Distributions by the Fund made during the
taxable year or, under specified circumstances, within twelve months after the
close of the taxable year, will be considered distributions of income and gains
of the taxable year and will, therefore, count towards the satisfaction of the
Distribution Requirement.
In addition to satisfying the Distribution Requirement, a
regulated investment company must derive at least 90% of its gross income from
dividends, interest, certain payments with respect to securities loans, gains
from the sale or other disposition of stock or securities or foreign currencies
(to the extent such currency gains are directly related to the regulated
investment company's principal business of investing in stock or securities) and
other income (including, but not limited to, gains from options, futures or
forward contracts) derived with respect to its business of investing in such
stock, securities or currencies (the "Income Requirement").
In general, gain or loss recognized by the Fund on the
disposition of an asset will be a capital gain or loss. In addition, gain will
be recognized as a result of certain constructive sales, including short sales
"against the box." However, gain recognized on the disposition of a debt
obligation purchased by the Fund at a market discount (generally, at a price
less than its principal amount) will be treated as ordinary income to the extent
of the portion of the market discount which accrued during the period of time
the Fund held the debt obligation. In addition, under the rules of Code Section
988, gain or loss recognized on the disposition of a debt obligation denominated
in a foreign currency or an option with respect thereto (but only to the extent
attributable to changes in foreign currency exchange rates), and gain or loss
recognized on the disposition of a foreign currency forward contract, futures
contract, option or similar financial instrument, or of foreign currency itself,
except for regulated futures contracts or non-equity options subject to Code
Section 1256 (unless the Fund elects otherwise), will generally be treated as
ordinary income or loss.
Further, the Code also treats as ordinary income a portion of
the capital gain attributable to a transaction where substantially all of the
return realized is attributable to the time value of the Fund's net investment
in the transaction and: (1) the transaction consists of the acquisition of
property by the Fund and a contemporaneous contract to sell substantially
identical property in the future; (2) the transaction is a straddle within the
meaning of section 1092 of the Code; (3) the transaction is one that was
marketed or sold to the Fund on the basis that it would have the economic
characteristics of a loan but the interest-like return would be taxed as capital
gain; or (4) the transaction is described as a conversion transaction in the
Treasury Regulations. The amount of the gain recharacterized generally will not
exceed the amount of the interest that would have accrued on the net investment
for the relevant period at a yield equal to 120% of the federal long-term,
mid-term, or short-term rate, depending upon the type of instrument at issue
reduced by an amount equal to: (1) prior inclusions of ordinary income items
from the conversion transaction and (2) the capital interest on acquisition
indebtedness under Code section 263(g). Built-in losses will be preserved where
the Fund has a built-in loss with respect to property that becomes a part of a
conversion transaction. No authority exists that indicates that the converted
character of the income will not be passed through to the Fund's shareholders.
In general, for purposes of determining whether capital gain
or loss recognized by the Fund on the disposition of an asset is long-term or
short-term, the holding period of the asset may be affected if (1) the asset is
used to close a "short sale" (which includes for certain purposes the
acquisition of a put option) or is substantially identical to another asset so
used, or (2) the asset is otherwise held by the Fund as part of a "straddle"
(which term generally excludes a situation where the asset is stock and the Fund
grants a qualified covered call option (which, among other things, must not be
deep-in-the-money) with respect thereto), or (3) the asset is stock and the Fund
grants an in-the-money qualified covered call option with respect thereto. In
addition, the Fund may be required to defer the recognition of a loss on the
disposition of an asset held as part of a straddle to the extent of any
unrecognized gain on the offsetting position.
Any gain recognized by the Fund on the lapse of, or any gain
or loss recognized by the Fund from a closing transaction with respect to, an
option written by the Fund will be treated as a short-term capital gain or loss.
B-10
<PAGE>
Treasury Regulations permit a regulated investment company, in
determining its investment company taxable income and net capital gain (i.e.,
the excess of net long-term capital gain over net short-term capital loss) for
any taxable year, to elect (unless it has made a taxable year election for
excise tax purposes as discussed below) to treat all or any part of any net
capital loss, any net long-term capital loss or any net foreign currency loss
incurred after October 31 as if it had been incurred in the succeeding year.
In addition to satisfying the requirements described above,
the Fund must satisfy an asset diversification test in order to qualify as a
regulated investment company. Under this test, at the close of each quarter of
the Fund's taxable year, at least 50% of the value of the Fund's assets must
consist of cash and cash items, U.S. Government securities, securities of other
regulated investment companies, and securities of other issuers (as to which the
Fund has not invested more than 5% of the value of the Fund's total assets in
securities of such issuer and as to which the Fund does not hold more than 10%
of the outstanding voting securities of such issuer), and no more than 25% of
the value of its total assets may be invested in the securities of any one
issuer (other than U.S. Government securities and securities of other regulated
investment companies), or in two or more issuers which the Fund controls and
which are engaged in the same or similar trades or businesses. Generally, an
option (call or put) with respect to a security is treated as issued by the
issuer of the security not the issuer of the option.
If, for any taxable year, the Fund does not qualify as a
regulated investment company, all of its taxable income (including its net
capital gain) will be subject to tax at regular corporate rates without any
deduction for distributions to shareholders, and such distributions will be
taxable to the shareholders as ordinary dividends to the extent of the Fund's
current or accumulated earnings and profits. Such distributions generally will
be eligible for the dividends-received deduction in the case of corporate
shareholders.
Excise Tax on Regulated Investment Companies
A 4% non-deductible excise tax is imposed on a regulated
investment company that fails to distribute in each calendar year an amount
equal to 98% of its ordinary taxable income for such calendar year and 98% of
its capital gain net income for the one-year period ended on October 31 of such
calendar year (or, at the election of a regulated investment company having a
taxable year ending November 30 or December 31, for its taxable year (a "taxable
year election")). The balance of such income must be distributed during the next
calendar year. For the foregoing purposes, a regulated investment company is
treated as having distributed any amount on which it is subject to income tax
for any taxable year ending in such calendar year.
For purposes of the excise tax, a regulated investment company
shall: (1) reduce its capital gain net income (but not below its net capital
gain) by the amount of any net ordinary loss for the calendar year; and (2)
exclude foreign currency gains and losses incurred after October 31 of any year
(or after the end of its taxable year if it has made a taxable year election) in
determining the amount of ordinary taxable income for the current calendar year
(and, instead, include such gains and losses in determining ordinary taxable
income for the succeeding calendar year).
The Fund intends to make sufficient distributions or deemed
distributions of its ordinary taxable income and capital gain net income prior
to the end of each calendar year to avoid liability for the excise tax. However,
investors should note that the Fund may in certain circumstances be required to
liquidate portfolio investments to make sufficient distributions to avoid excise
tax liability.
Fund Distributions
The Fund anticipates distributing substantially all of its
investment company taxable income for each taxable year. Such distributions will
be taxable to shareholders as ordinary income and treated as dividends for
federal income tax purposes. However, such distributions will qualify for the
70% dividends-received deduction for corporate shareholders, but only to the
extent discussed below.
B-11
<PAGE>
The Fund may either retain or distribute to shareholders its
net capital gain for each taxable year. The Fund currently intends to distribute
any such amounts. Net capital gain that is distributed and designated as a
capital gain dividend will be taxable to shareholders as long-term capital gain,
regardless of the length of time the shareholder has held his shares or whether
such gain was recognized by the Fund prior to the date on which the shareholder
acquired his shares. The Code provides, however, that under certain conditions
only 50% (58% for alternative minimum tax purposes) of the capital gain
recognized upon the Fund's disposition of domestic "small business" stock will
be subject to tax.
Conversely, if the Fund elects to retain its net capital gain,
the Fund will be taxed thereon (except to the extent of any available capital
loss carryovers) at the 35% corporate tax rate. If the Fund elects to retain its
net capital gain, it is expected that the Fund also will elect to have
shareholders of record on the last day of its taxable year treated as if each
received a distribution of his pro rata share of such gain, with the result that
each shareholder will be required to report his pro rata share of such gain on
his tax return as long-term capital gain, will receive a refundable tax credit
for his pro rata share of tax paid by the Fund on the gain, and will increase
the tax basis for his shares by an amount equal to the deemed distribution less
the tax credit.
Ordinary income dividends paid by the Fund with respect to a
taxable year will qualify for the 70% dividends-received deduction generally
available to corporations (other than corporations, such as S corporations,
which are not eligible for the deduction because of their special
characteristics and other than for purposes of special taxes such as the
accumulated earnings tax and the personal holding company tax) to the extent of
the amount of qualifying dividends received by the Fund from domestic
corporations for the taxable year. Generally, a dividend received by the Fund
will not be treated as a qualifying dividend (1) if it has been received with
respect to any share of stock that the Fund has held for less than 46 days (91
days in the case of certain preferred stock), excluding for this purpose under
the rules of Code Section 246(c)(3) and (4) any period during which the Fund has
an option to sell, is under a contractual obligation to sell, has made and not
closed a short sale of, is the grantor of a deep-in-the-money or otherwise
nonqualified option to buy, or has otherwise diminished its risk of loss by
holding other positions with respect to, such (or substantially identical)
stock; (2) to the extent that the Fund is under an obligation (pursuant to a
short sale or otherwise) to make related payments with respect to positions in
substantially similar or related property; or (3) to the extent that the stock
on which the dividend is paid is treated as debt-financed under the rules of
Code section 246A. The 46-day holding period must be satisfied during the 90-day
period beginning 45 days prior to each applicable ex-dividend date; the 91-day
holding period must be satisfied during the 180-day period beginning 90 days
before each applicable ex-dividend date. Moreover, the dividends-received
deduction for a corporate shareholder may be disallowed or reduced (1) if the
corporate shareholder fails to satisfy the foregoing requirements with respect
to its shares of the Fund or (2) by application of Code Section 246(b) which in
general limits the dividends-received deduction to 70% of the shareholder's
taxable income (determined without regard to the dividends-received deduction
and certain other items).
Alternative minimum tax ("AMT") is imposed in addition to, but
only to the extent it exceeds, the regular tax and is computed at a maximum
marginal rate of 28% for non-corporate taxpayers and 20% for corporate taxpayers
on the excess of the taxpayer's alternative minimum taxable income ("AMTI") over
an exemption amount. For purposes of the corporate AMT, the corporate
dividends-received deduction is not itself an item of tax preference that must
be added back to taxable income or is otherwise disallowed in determining a
corporation's AMTI. However, a corporate shareholder will generally be required
to take the full amount of any dividend received from the Fund into account
(without a dividends-received deduction) in determining its adjusted current
earnings, which are used in computing an additional corporate preference item
(i.e., 75% of the excess of a corporate taxpayer's adjusted current earnings
over its AMTI (determined without regard to this item and the AMT net operating
loss deduction)) includable in AMTI.
Investment income that may be received by the Fund from
sources within foreign countries may be subject to foreign taxes withheld at the
source. The United States has entered into tax treaties with many foreign
countries which entitle the Fund to a reduced rate of, or exemption from, taxes
on such income. It is impossible to determine the effective rate of foreign tax
in advance since the amount of the Fund's assets to be invested in various
countries is not known.
B-12
<PAGE>
Distributions by the Fund that do not constitute ordinary
income dividends or capital gain dividends will be treated as a return of
capital to the extent of (and in reduction of) the shareholder's tax basis in
his/her shares; any excess will be treated as gain from the sale of his/her
shares, as discussed below.
Distributions by the Fund will be treated in the manner
described above regardless of whether such distributions are paid in cash or
reinvested in additional shares of the Fund (or of another fund). Shareholders
receiving a distribution in the form of additional shares will be treated as
receiving a distribution in an amount equal to the fair market value of the
shares received, determined as of the reinvestment date. In addition, if the net
asset value at the time a shareholder purchases shares of the Fund reflects
undistributed net investment income or recognized capital gain net income, or
unrealized appreciation in the value of the assets of the Fund, distributions of
such amounts will be taxable to the shareholder in the manner described above,
although such distributions economically constitute a return of capital to the
shareholder.
Ordinarily, shareholders are required to take distributions by
the Fund into account in the year in which the distributions are made. However,
dividends declared in October, November or December of any year and payable to
shareholders of record on a specified date in such a month will be deemed to
have been received by the shareholders (and made by the Fund) on December 31 of
such calendar year if such dividends are actually paid in January of the
following year. Shareholders will be advised annually as to the U.S. federal
income tax consequences of distributions made (or deemed made) during the year.
The Fund will be required in certain cases to withhold and
remit to the U.S. Treasury 31% of ordinary income dividends and capital gain
dividends, and the proceeds of redemption of shares, paid to any shareholder (1)
who has failed to provide a correct taxpayer identification number, (2) who is
subject to backup withholding for failure to properly report the receipt of
interest or dividend income, or (3) who has failed to certify to the Fund that
it is not subject to backup withholding or that it is a corporation or other
"exempt recipient."
Sale or Redemption of Shares
A shareholder will recognize gain or loss on the sale or
redemption of shares of the Fund in an amount equal to the difference between
the proceeds of the sale or redemption and the shareholder's adjusted tax basis
in the shares. All or a portion of any loss so recognized may be disallowed if
the shareholder purchases other shares of the Fund within 30 days before or
after the sale or redemption. In general, any gain or loss arising from (or
treated as arising from) the sale or redemption of shares of the Fund will be
considered capital gain or loss and will be long-term capital gain or loss if
the shares were held for longer than one year. However, any capital loss arising
from the sale or redemption of shares held for six months or less will be
treated as a long-term capital loss to the extent of the amount of capital gain
dividends received on such shares. For this purpose, the special holding period
rules of Code Section 246(c)(3) and (4) (discussed above in connection with the
dividends-received. deduction for corporations) generally will apply in
determining the holding period of shares. Capital losses in any year are
deductible only to the extent of capital gains plus, in the case of a
non-corporate taxpayer, $3,000 of ordinary income.
Foreign Shareholders
Taxation of a shareholder who, as to the United States, is a
nonresident alien individual, foreign trust or estate, foreign corporation, or
foreign partnership ("foreign shareholder"), depends on whether the income from
the Fund is "effectively connected" with a U.S. trade or business carried on by
such shareholder.
If the income from the Fund is not effectively connected with
a U.S. trade or business carried on by a foreign shareholder, ordinary income
dividends paid to a foreign shareholder will be subject to U.S. withholding tax
at the rate of 30% (or lower treaty rate) upon the gross amount of the dividend.
Such foreign shareholder would generally be exempt from U.S. federal income tax
on gains realized on the sale of shares of the Fund, capital gain dividends and
amounts retained by the Fund that are designated as undistributed capital gains.
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If the income from the Fund is effectively connected with a
U.S. trade or business carried on by a foreign shareholder, then ordinary income
dividends, capital gain dividends, and any gains realized upon the sale of
shares of the Fund will be subject to U.S. federal income tax at the rates
applicable to U.S. citizens or domestic corporations.
In the case of a foreign shareholder other than a corporation,
the Fund may be required to withhold U.S. federal income tax at a rate of 31% on
distributions that are otherwise exempt from withholding tax (or taxable at a
reduced treaty rate) unless such shareholder furnishes the Fund with proper
notification of his/her foreign status.
The tax consequences to a foreign shareholder entitled to
claim the benefits of an applicable tax treaty may be different from those
described herein. Foreign shareholders are urged to consult their own tax
advisers with respect to the particular tax consequences to them of an
investment in the Fund, including the applicability of foreign taxes.
Effect of Future Legislation; State and Local Tax Consideration
The foregoing general discussion of U.S. federal income tax
consequences is based on the Code and the Treasury Regulations issued thereunder
as in effect on the date of this Statement of Additional Information. Future
legislative or administrative changes or court decisions may significantly
change the conclusions expressed herein, and any such changes or decisions may
have a retroactive effect.
Rules of state and local taxation of ordinary income dividends
and capital gain dividends from regulated investment companies may differ from
the rules for U.S. federal income taxation described above. Shareholders are
urged to consult their tax advisers as to the consequences of these and other
state and local tax rules affecting investment in the Fund.
ADDITIONAL INFORMATION ABOUT THE FUND
The Fund is a series of Stralem Fund, a Delaware buisness
trust. The Delaware Business Trust Act provides that a shareholder of a Delaware
business trust shall be entitled to the same limitation of personal liability
extended to shareholders of Delaware corporations, and the Trust Instrument
provides that shareholders of the Fund shall not be liable for the obligations
of the Fund. The Trust Instrument also provides for indemnification out of Fund
property any shareholder held personally liable solely by his or her being or
having been a shareholder. The Trust Instrument also provides that the Fund
shall, upon request, assume the defense of any claim made against any
shareholder for any act or obligation of the Fund, and shall satisfy any
judgment thereon. Thus, the risk of a shareholder incurring financial loss
because of shareholder liability is considered to be extremely remote.
The Trust Instrument authorizes the Board of Trustees to issue
an unlimited number of shares, which are units of beneficial interest, with a
par value of $0.01 per share. Each share has one vote and participates equally
in dividends and distributions declared by the Fund and in the Fund's net assets
on liquidation. The shares, when issued, are fully paid and non-assessable.
Shares have no pre-emptive, subscription or conversion rights and are freely
transferable.
Richard A. Eisner & Company, LLP, 575 Madison Avenue, New
York, New York 10022 is the independent certified public accountant for the Fund
and performs auditing services for the Fund.
Schroder & Co. Inc. (the "Custodian"), a Delaware corporation
which is a member corporation of the New York Stock Exchange, Inc., and the
corporation through which the Investment Adviser clears its securities
transactions, acts as the custodian for all securities of the Fund. The
Custodian's principal office is presently located at 787 Seventh Avenue, New
York, New York 10019. The Fund has a bank checking account with Chase Manhattan
Bank.
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Kramer Levin Naftalis & Frankel LLP, 919 Third Avenue, New
York, New York 10022 serves as counsel to the Fund.
The Fund acts as its own transfer agent and registrar and
dividend agent.
FINANCIAL STATEMENTS
The audited financial statements for the Fund and the notes
thereto as of December 31, 1998 are incorporated herein by reference to the
Fund's Annual Report to Shareholders dated January 13, 1999. The December 31,
1998 financial statements are incorporated herein in reliance upon the report of
Richard A. Eisner & Company, LLP, independent accountants, given on the
authority of such firm as experts in auditing and accounting. Additional copies
of the Annual Report may be obtained free of charge by telephoning the Fund at
the telephone number appearing on the front page of this SAI.
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